Sale of a Business – North Carolina Courts May Do More Than Just Use Their Blue Pencils When Considering a Non-Compete Clause

November 7th, 2014

By:  John N. Fleming

Non-Compete clauses have long been an important part of transactions involving the purchase of a business.  Much of what is often purchased in a business acquisition includes the relationships, contracts and goodwill built-up and established by the seller.  Often, the non-compete restrictions imposed upon and agreed to by the seller and its owner protect and preserve the value of what is being purchased. 

North Carolina courts have held that a non-compete restriction that is part of the sale of a business is valid and enforceable if the written non-compete restriction: (1) is reasonably necessary to protect the legitimate interest of the purchaser; (2) is reasonable with respect to both time and territory; and (3) does not interfere with the interest of the public.  Further, traditionally in North Carolina, when courts have been asked to interpret overly-broad restrictive covenants, they have been limited to applying what is called the strict blue pencil doctrine.  Under the blue pencil doctrine, a court may cross out or choose not to enforce a distinctly separable part of a covenant to render the remainder of the provision reasonable.  However, under this theory, a court may not otherwise revise or rewrite the restrictive covenant to make it reasonable.  

Recently, in the case of Beverage Systems of the Carolinas, LLC  v. Associated Beverage Repair, LLC, Ludine Dotoli and Cheryl Dotoli, the North Carolina Court of Appeals went beyond, the  strict blue pencil doctrine because the buyer and seller had expressly granted the court the power to revise the restrictive covenant in the asset purchase agreement.  More specifically, the non-compete clause in the agreement gave the court the authority to revise the restrictive covenant to cover the maximum period, scope and area permitted by the law.  The North Carolina Court of Appeals found that the trial court had the power to revise the restriction regarding territory to make it reasonable and thus enforceable.  As a result of this decision, and when expressly directed by the buyer and the seller, the court could do more than cross out a distinct provision, but it could now revise or re-write a restrictive covenant to determine reasonableness.  It is important to note that this expansion of a court’s authority from the limitations of the blue pencil doctrine to allowing revisions by the court is limited to the interpretation of restrictive covenants that are part of the sale of a business and in situations where the purchaser and seller expressly grant the court such authority.  At present, the expansion of a court’s authority so that it may revise a restrictive covenant has not been interpreted in the context of an employment agreement.      

Although this expansion of court authority has yet to be interpreted by the North Carolina Supreme Court, it does have implications for buyers and sellers of businesses and their attorneys.  When negotiating the agreement to buy or sell a business, attention should be placed on whether a clause should be included to empower the court to revise an otherwise unenforceable provision of a restrictive covenant.  Including such a provision may result in a court revising an overly-broad restrictive covenant and preserving for the buyer the value of what was purchased.


John Fleming is a general practitioner in corporate law with an exceptional knowledge of Health Care Law.  For help concerning the sale or purchase of a business, or for more information, contact John Fleming at or (828) 254-8800.

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The Benefits Of Church Plan Status For Your Self-Funded Health Insurance Plan

October 16th, 2014

By Jeffrey Owen

Is your non-profit organization affiliated (even somewhat loosely) with a recognized religious denomination?  Do you have a self-funded health insurance plan?  If you answered “Yes” to these two questions, your insurance plan is likely a candidate for being classified by the IRS as a “Church Plan.”  Even insured plans can benefit, but to a lesser extent.

Now you ask, “Why should I bother?”  Things are going well for our self-funded health plan right now.  There are about 20 major IRS code sections that hit non-church plans from which church plans are exempt.  Many of these are minor exemptions, but a few are important.  Here are the key benefits of having your health plan qualify as a “Church Plan”:

1.  COBRA Does Not Apply.  Without a doubt, this is the number one benefit.  Here’s how it works.  Let’s say you have an employee who becomes covered under your health plan whom you subsequently terminate for drinking on the job.  Your policy is to offer terminated employee COBRA for 18 months.  During the COBRA period, the terminated employee has a liver transplant (alcoholism) and a heart transplant (obesity) and dies.  Your self-funded plan pays out $1,000,000 for these expensive surgeries.  Who is stuck with the bill?  If your stop-loss limit is high, the plan pays – really the employees pay – in increased premiums.  If your stop-loss is triggered, your experience rating shoots up and your premium jumps in the next plan year.  Your participants are again stuck with a bill.  Being a Church Plan allows you to offer only the COBRA-like benefits that you want to offer.  Perhaps you would like to implement a sliding scale of post-termination health benefits tied to longevity.  Perhaps you would like to offer only 3 months of COBRA-like benefits to all terminated employees.  Any rationally applied standard would probably work.  But before you get too excited, you need to check the law of your state to see if there is a state-law equivalent to COBRA that applies to religious organizations (hint, NC = no problem).   

2.  No 5500 Filing Required.  Another exciting and expensive annual task is to have your accountant prepare and file a form 5500.  Become a Church Plan and get rid of it.  How much are you paying your CPA to do this annually?  No more filings!   

3.  HIPPAA Relief.  How would you like a little relief from HIPPAA?  Church Plans are exempt from the ERISA-based portions of HIPAA since they are not subject to ERISA.  Some other health information laws apply, so you don’t get a free pass.  Penalties for non-compliance are relaxed and correction periods extended for Church Plans.   

“How do I become a Church Plan” you ask?  There are two ways.  You can self-declare or you can obtain an IRS Private Letter Ruling.  The Letter Ruling will be a definitive ruling on the issue for your organization from the IRS and is of course preferred.  The IRS fee for the letter ruling is $10,000 or so and legal costs would be about $10,000 to $20,000 depending on your particular facts.  So for under $30,000 you can have all the benefits of being a Church Plan and save your participants lots of premium costs.  Often the cost will be paid for in the first year of operation.  So what are you waiting for?


Jeffrey Owen practices in the nonprofit ERISA arena and has successfully obtained rulings for his clients on this issue.  If you would like to discuss the benefits of Church Plan status for your organization’s health plan (or other employee benefit plans) please contact him at


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Condominiums – No Longer Subject to Interstate Land Sales Act (ILSA Law)

October 2nd, 2014

On September 18, 2014 the US Senate unanimously approved amendments which will have the effect of removing condominium developments from application of ILSA.  The amendment becomes effective 180 days after signed by the President, which is expected given overwhelming bi-partisan support in the Senate and House.  ILSA was enacted in the 1960’s to protect consumers from large development lot sale scams. Before changes to the law, developers of condominiums containing more than 99 units were technically required to register under ILSA, and many argued for years that application to condominiums was not what was originally intended, and did not really have any additional positive protective effect for purchasers.  The fact that developers will not have to comply with this very cumbersome law should be a great relief to developers, one that will hopefully be one more encouragement to commence larger scale condominium projects.

For more information, this link will take you directly to the version of the bill approved by the US Senate:

Please call any of the attorneys in our Commercial Development Practice Group if you have any questions about ILSA, or any other legal issues related to commercial real estate development.


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